DEPARTMENT FOR EMPLOYMENT AND LEARNING
Economic Appraisal Pro Forma
(For Expenditure between £150k and £500k)
Business Case Submitted By
(Organisation/Division)________________________
(Name)_________________________
(Position)_______________________
(Date)__________________________
(Signature)______________________
Business Case Approved By *
(Signature)___________________________
(Grade)_______________________________
(Date) _________________________________
* Evidence of approval should be retained for future inspection
Have you noted SMART objectives and constraints in the project
Have you carried forward at least three options (Including the status Quo)
Have you noted the mechanism/detail/timing for the post project
evaluation?
Each section of the attached Economic Appraisal Pro Forma should be completed. If
required, sections may be extended to provide enough space for the details to be
entered. More in depth guidance on each of the steps of appraisal can be found at
http://www.dfpni.gov.uk/eag. In addition EA training is currently delivered by DFP
economists and these courses can be accessed via the CAL website.
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1.
Strategic Context
This section should be used to describe the strategic relevance of the proposed
policy, programme or project. Reference should be made to any relevant
documents (such as Departmental Corporate Plans), strategies or research
papers at both a local and where relevant national level and specifically how the
proposed project ‘fits’ with these.
DFP GUIDANCE STATES THAT STRATEGIC CONTEXT SECTIONS
SHOULD BE VERY SHORT AND NORMALLY NO MORE THAN 2 PAGES
OF ANY BUSINESS CASE.
Policy
Overview and contribution of the proposed project
document
Northern
The Programme for Government 2011-2015 (PfG) in
Ireland
Northern Ireland aims to highlight the actions the
Executive,
Executive will take to deliver its number one priority – “a
Programme
vibrant economy which can transform our society while
for
dealing with the deprivation and poverty which has
Government
affected some of our communities for generations”. The
(PfG)
most immediate challenges lie in supporting economic
“Building a
recovery and tackling disadvantage.
Better Future,
include:
Priority areas
Priorities and
Budget” 2011

– 2015
“Growing a Sustainable Economy and Investing in
the Future;

Creating Opportunities, Tackling Disadvantage and
Improving Health and Well-Being;

Protecting Our People, the Environment and Creating
Safer Communities;

Building a Strong and Shared Community; and

Delivering High Quality and Efficient Public Services”.
Contribution of the proposed project:
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Northern
The overarching goal of this Strategy is to improve the
Ireland
economic competitiveness of the Northern Ireland
Economic
economy. This involves rebalancing the economy to
Strategy
improve the wealth, employment and living standards of
everyone in NI.
One of the ways identified in the strategy to achieve this
is to improve the skills and employability of the entire
workforce so that people can progress up the skills
ladder, thereby delivering higher productivity and
increased social inclusion.
What has also been
identified is that a world class education and skills
system is critical for economic growth.
Contribution of the proposed project:
Department
This document, the Skills Strategy for Northern Ireland,
for
is based on an analysis that links higher levels of skills
Employment
(via qualifications) as being one of the best means of
and Learning
achieving higher productivity, leading in turn to raised
(DEL):
employment and increased social inclusion.
Success
through Skills
Contribution of the proposed project:
- Transforming
Futures (2011)
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Any other
This section should include any strategy or policy
policy or
document specific to the Division/Sector/Organisation in
strategy
question e.g. the HE Strategy or FE means Business or
documents
the Skills Strategy
specific to this
case should
be included
here along the
same format
of those
outlined
above.
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2.
Establish the Need for the Project
Rigorously establishing the need for a project is a fundamental part of good
economic appraisal. Please give a detailed description of the project need both
now and in the future. Identify how the current situation is deficient - identify the
deficiencies or problems with the existing service provision in order to establish
the need for expenditure.
You should also seek to analyse expected demand and or consider future
performance. Further, need should be quantified i.e. supported by appropriate
data/statistics showing levels of usage/demand etc.
The appraisal should also demonstrate that assessments of additionality and
displacement have been considered. A project should not receive assistance,
if the project objectives would be achieved without the public expenditure. In
general assisted projects should receive only the minimum assistance
required to bring them about, with any excess over the amount referred to as
‘deadweight’. Displacement refers to the extent to which the proposed project
displaces activity from similar provision from elsewhere. For example, a
proposal to develop a new ICT skills centre in a particular region – how will this
impact on existing activities/venues within the region and beyond? In this
example the appraisal must outline the potential displacement related to the
ICT skills centre.
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3.
Objectives & Constraints
Objectives (or Targets) must be set for the project based on the previously
identified strategies and from the assessment of need. These objectives should
be Specific, Measurable, Agreed, Realistic and Time-dependent (i.e. “SMART” as
recommended in NIGEAE). You should also ensure that the objectives can be
tracked from the evidence presented in the need
Any constraints involved with the project should also be documented. These
may be technical, legal, political or financial in nature. Any associated
Outcomes should also be considered.
Objectives:
Constraints:
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4.
Identification of Options and Option Sift
Comparison of alternative courses of action is at the core of appraisal. The
range of options considered should generally be as wide as possible. The
options listed should include a baseline or status quo option. The alternative
options should consist of various ways of meeting the need covering a range
of levels of provision. A long list of options may be given initially, before being
shortened to a more manageable shortlist. This shortlist, though, should
contain the baseline case plus at least two alternatives. Where options are
considered but eliminated at an early stage, the grounds for elimination should
be explicitly stated - options must be shortlisted based on their consistency
with project objectives and constraints. An option number should be allocated
to each option carried forward for further appraisal. Options that do not
proceed to the stage of being costed, should be labelled as Rejected.
Option name
Option
Description
Included (I) or
Rejected (R)
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Reason for
rejection
5.
Monetary Costs & Benefits
This section should assess the costs associated with each of the carried
forward options. You should seek to ensure that you present all costs in as
much detail as possible whilst also ensuring that you present the
source/basis/rationale for all costs. Note that in relation to benefits only
monetary benefits should be included in this section, if no monetary benefits
will accrue this should be noted.
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6.
Risk Appraisal and Optimism Bias
The presence of risks, which can be economic, managerial, legal or financial e.g. risk of a capital cover overrun, may influence the
choice of option, therefore the implications must be thoroughly explored. It is crucial that potential risks are identified and their
impact assessed across all options. Using the template below, please give details of any risks along with the countermeasures that
will be put in place to minimise their impact on the project.
Also indicate the impact of each risk and its associated likelihood for each option in accordance with the scoring below the table.
Risk description
Risk
Owner
Impact
(I)
Option:
Option:
Option:
Likelihood
(L)
Option :
Option :
Option :
Option:
Option:
Option:
Option:
Option:
Option:
Option:
Option:
Option:
Option:
Option:
Option:
Option:
Option:
Option:
Option:
Option:
Option:
Risk Rating
(IxL)
Countermeasure
Impact (I): 1 – Low, 2 – Minor, 3 – Moderate, 4 – Major, 5 – Serious
Likelihood (L): 1 – Highly Unlikely, 2 – Unlikely, 3 – Possible, 4 – Likely, 5 – Highly Likely
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You should then use this section to provide a concise explanation for the
scores you have allocated to each of the options in the table above.
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Adjusting for Optimism Bias
The Northern Ireland Guide to Expenditure Appraisal and Evaluation (NIGEAE)
states that there is a demonstrated, systematic tendency for project appraisers
to be overly optimistic, referred to as ‘optimism bias’, and to redress this
tendency, the guidance requires appraisals to make explicit, empirically based
adjustments to the estimates of a project cost, benefits and duration.
You should seek to provide historical evidence of cost overrun in similar size
and cost appraisals (evidence based), insofar as possible. The average of
these cost overruns would then be summed as the OB amount (percentage
overrun on similar past projects). The monetary costs identified at step 5
should then be OB-adjusted. If no historical base is available then the Mott
MacDonald
framework
can
be
used
http://www.dfpni.gov.uk/index/finance/eag/eag_resources/eag-optimism-biascalculator.htm .
All supporting calculations should be presented or
appendixed to the submission of the business case
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7.
Non-Monetary Costs & Benefits
Non-monetary costs and benefits are an important factor in assessing value for money. You should seek to identify a number of non
monetary costs and benefits relevant to your project. You should then use the weighting and scoring table below to describe and
score the impact of each cost and benefit against each of your carried forward options.
Each option should be given a score between 1 and 10 against each of the criteria with an option scoring 10 having the maximum
positive impact.
The weighting allocated to the x number of criteria should sum to 100%. Each criterion should be a factor which cannot be given a
monetary value for example any identified social or environmental factors.
Option …
Option …
S
S
WS
Option …
WS
Criterion One
(weight)
Criterion Two
(weight)
Criterion Three
(weight)
Criterion
Four
(weight)
Total
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S
Option …
WS
S
WS
Weighting and scoring must be fully explained, you should use the section
below to explain the weighting you have applied to each of your criterion. You
should then explain the scores you have allocated to each option in the table
above.
Each individual score must be justified, it is not sufficient to
categorise options by saying, for example, that option x is a low scoring
option.
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8.
Calculate Net Present Values (NPVs) and access uncertainties
Appraisals should include, for each option, a calculation of its NPV. This is
the name given to the sum of the discounted benefits of an option less the
sum of its discounted costs, all discounted to the same base date. Where
the sum of discounted costs exceed that of the discounted benefits, the net
figure should be referred to as the Net Present Cost (NPC).
The time horizon for NPV calculations should reflect the economic life of
the services being appraised, or the useful life of the relevant assets and
should be sufficiently distant to cover all the important cost and benefit
differences between options.
The anticipated effects of general inflation should be removed from all
figures before discounting.
Optimism Bias adjustments (Section 6) must be made before the
calculation of NPVs, that is, NPV analysis must be conducted on OBadjusted figures.
NPV analysis should be completed using the NPV Calculator available from
the DFP website: http://www.dfpni.gov.uk/npc-calculator.xls
Assessment of uncertainty is chiefly about testing the robustness of the
appraisal conclusions and sensitivity analysis is the key technique for this
purpose. So, for example, you may wish to assess the NPV-impact of a
change in the underlying assumption for a key variable, say a reduction in
projected student numbers, less favourable income assumptions or lower
than anticipated maintenance/running costs.
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9.
Assess arrangement for financing and affordability
This section should include an affordability analysis/statement of the
shortlisted options (affordability can influence option selection, therefore it is
not usually sufficient to restrict consideration of affordability to a ‘preferred
option’). This will generally include a budget statement showing the resource
costs over the lifetime of the project and a cashflow statement showing the
cash requirement of each option, including VAT and inflation.1 Affordability
should also include a funding statement to note who would provide the
resources/cash required to deliver the option in question – including any
contribution from the Department. The consideration of financing and
affordability should be in line with the DEL financial year and for NDPBs must
include OTV Budget considerations.
Yr 0
Yr 1
Yr 2
Yr 3
Totals
£000’s
£000’s
£000’s
£000’s
£000’s
Total DEL Required:
Capital DEL
Resource DEL
Allowance for
depreciation/impairment
(included
in Resource
DEL figures
Existing
DEL
Provision:
above)
Capital DEL
Resource DEL
Allowance for
depreciation/impairment
(includedDEL
in Resource
DEL figures
Additional
Required:
above)
Capital DEL
Resource DEL
Allowance for
depreciation/impairment
(included in Resource DEL figures
above)
Funding Body
Sum funded
& % of total
£
£
£
Funding
secured?
Yes/No
If not secured, indicate status
of negotiations
( %)
( %)
( %)
1
GDP deflators can be found at the following link https://www.gov.uk/government/collections/gdpdeflators-at-market-prices-and-money-gdp you should select the latest available statistics, the figures
used to apply inflation can be found in the column ‘percentage change on previous year’ – consult
Victoria Reid or John Kerr if further advice is required
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10. Assess the balance of advantage between options and identify a preferred
option
A summary section should be provided for all of the options detailing the
results of the analysis of monetary costs and benefits, non-monetary factors
benefits assessment, assessment of risk and uncertainty and affordability
considerations. Based on these summary results, a preferred option should be
identified. In straightforward cases low cost options which are ranked high in
terms of non-monetary benefits, with a low level of risk, will dominate the other
options. In some cases, however, it will be for the decision-maker to trade off
between high cost (and possibly high risk) options with high benefits and low
cost (and possibly low risk) options with lower benefits.
This table below summarises the appraisal process and justifies the preferred
option selection.
Option
Cost (£) Rank
Risk
Score
Rank
NMB
Score
Rank
Overall
rank
11. Management, procurement, marketing, monitoring and ex post evaluation
of the preferred option
The proposed arrangements, dates and individuals responsible for project
management, monitoring and evaluation should be documented by providing
information on when, how and by whom these tasks will be undertaken. This
section should also include details of the intended procurement process. This
should also include the provision of a Benefits Realisation Plan for the project
This section should note who will carry out the evaluation and a specific
date when the PPE will be carried out (within 6-12 months of the
project’s completion).
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Benefits Realisation Plan
Benefits here can be traced back to the objectives and the non monetaries established earlier in the appraisal, in general they can be:
financial e.g. a reduction in management costs, non financial e.g. an improvement in the level of skills and/or outcomes e.g.
Improved standards of teaching provision. Information should be included on how benefits will be measured, when will they be
achieved and who will be responsible for monitoring the benefit(s)
Benefit owner
Benefit
description
Baseline
Target
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How will it be
measured
Who is
responsible
Dates/Timing
Risk log for preferred option
This section should identify all perceivable risks associated with the preferred option and can include those identified earlier in the
risks analysis.
Risk Description
Category
(funding,
operating
etc)
Impact
(low,
medium,
high)
Probability
(low,
medium,
high)
Proximity
(short,
medium,
long term)
Counter-measures
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Owner
Author
Date
Identified
Date
Last
Updated
Current
Status
DEL Economist Contacts:



Wendy Lecky
John Kerr
James Gordon
(028 9025 7672)
(028 9025 7775)
(028 9025 7426)
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